A new whistleblower program announced by the Department of Justice (DOJ) — targeting corruption, financial institution crimes, and healthcare fraud — is expected to generate more directors and officers liability (D&O) insurance claims against businesses. Organizations should respond by ensuring their internal compliance protocols are effective and also consider adding entity investigation coverage to their D&O policies.
“Our tip line is open”
On August 1, the DOJ Criminal Division announced the launch of its Corporate Whistleblower Awards Pilot Program (opens a new window). Under the pilot program, a whistleblower who provides information regarding corporate misconduct that results in forfeitures greater than $1 million may be eligible for a financial reward. With potential awards as high as 30% of the first $100 million in net proceeds forfeited and 5% of net proceeds forfeited between $100 and $500 million, employees now have a strong incentive to report misconduct.
The launch of the three-year pilot executes on the DOJ’s clear intention to prioritize individual reporting of criminal misconduct by companies. In announcing the program, Principal Deputy Assistant Attorney General Nicole M. Argentieri said the DOJ is “sending a message to individuals who know about corporate misconduct: Our tip line is open, so if you see something, say something.”
With the possibility of significant reward and with relatively minimal effort — individuals need only submit one form to alert the DOJ to potential corporate misconduct — many observers are predicting a surge in whistleblower reports to the DOJ. We anticipate that an increase in reports of claims and potential claims under D&O policies arising from the resulting investigations is likely to follow.
Four areas of focus
Individual whistleblowers must voluntarily provide the DOJ’s Criminal Division with original and truthful information about criminal misconduct that falls within specific categories not covered by other whistleblower programs. These include:
Financial institution crimes by entities ranging from traditional banks to cryptocurrency businesses and involving money laundering, fraud statutes, and fraud against or noncompliance with financial institution regulators.
Foreign corruption, including violations of the Foreign Corrupt Practices Act, Foreign Extortion Prevention Act, and money laundering statutes.
Domestic corruption, including of elected or appointed government officials and officers or employees of government departments or agencies.
Healthcare fraud schemes involving private insurance plans in which qui tam recovery under the False Claims Act is not available.
Individuals must meet certain requirements, including reporting misconduct to the DOJ within a certain timeframe, to be eligible for awards.
More claims expected
Whistleblower tips have generated significant investigations and enforcement actions for other government agencies with similar programs. The Securities and Exchange Commission (SEC), for example, has awarded nearly $2 billion to whistleblowers (opens a new window) since its whistleblower program launched in 2011. In addition, enforcement actions resulting from whistleblower tips have resulted in more than $6 billion in financial remedies.
The Commodity Futures Trading Commission (opens a new window) and the Financial Crimes Enforcement Network also have similar programs, which serve as models for the DOJ program. Given the success of other whistleblower programs in generating tips that have led to investigations, companies should expect more investigations as a result of the DOJ’s program.
Investigation coverage in focus
Demand for entity investigation coverage under D&O policies is likely to rise as the new DOJ program launches. D&O insurers, however, have been wary of offering such coverage (opens a new window) to some companies.
While we expect there to be an increase in potential D&O claims because of the new whistleblower program, it is unclear whether it will exacerbate D&O insurers’ concerns. Entity investigation coverage is often limited in scope or only available after payment of an additional premium, so the impact of the DOJ program on what coverage is offered by D&O carriers remains to be seen.
As the new DOJ program launches, insurance buyers should work closely with their insurance brokers to evaluate the scope of entity investigation coverage available under their D&O policies and to understand what further enhancements may be available in the market.
